Is the Main Battleground for E-Cigarette Sales Online or Offline?

With the rising momentum of e-cigarettes, various elites are flocking into the e-cigarette industry, and the joining of Cheng Yicai and Duan Fei is just a microcosm. Notable figures such as Luo Yonghao, founder of Smartisan Technology, Zhu Xiaomu, the first employee of Smartisan, Cai Yuedong, founder of "Tongdao Dashi," and senior executives from Uber China like Wang Ying; as well as Sha Xiaopi, CEO of Visionary, and Zeng Hang, CEO of Military Weapons Next Dimension, have all established their own e-cigarette brands.

Additionally, it has been reported that former senior public relations vice president of Pinduoduo, Guo Guangdong, has joined RELX as the head of public relations and marketing. Fang Hui, a seasoned public relations expert who has worked at JD.com and Douyu, has joined Bode as a partner and CMO. Former Alibaba and Mobike executive Cao Guoxing has taken on the role of vice president of public relations at Snow Plus, while former Heineken China sales executive Liu Shuo has joined Snow Plus as the national channel sales head. Besides these, a large number of elites from various fields have also switched to the e-cigarette industry, choosing to serve as executives for brands they believe in.

Elites Bring New Atmosphere to the E-Cigarette Industry

The entry of these elites means they will bring different product experiences and operational models to the e-cigarette industry.

For instance, Luo Yonghao and Cai Yuedong come from the internet background, so their companies have a distinct internet attribute, focusing more on marketing. Especially since they are all "internet celebrities," leveraging their "traffic" and "KOL" roles has garnered significant attention for their e-cigarette brands, ensuring product sales and providing rapid online sales channels.

On the other hand, Zhu Xiaomu and other former marketing executives focus more on offline marketing. For example, the e-cigarette brand founded by Zhu Xiaomu has successively collaborated with the band "Queen's Suitcase" from the show "The Summer of Bands," the movie "Dance, Elephant!", and the celebrity garage of Secoo to create exclusive IP co-branded products, selling them in conjunction with corresponding scenarios.

The addition of Fang Hui, Cheng Yicai, and Duan Fei to Bode will play a role in offline channels and retail, concentrating their main sales routes on offline stores and channel agents. This also indicates that Bode will develop along the 3C route.

Online is Currently the Main Channel for Purchasing E-Cigarettes

Many people believe that the e-cigarette industry has a low threshold, simply categorizing it as an internet project. In fact, the e-cigarette industry has a high barrier to entry; it requires both product development and marketing, involving both offline and online aspects, as well as supply chain and offline channel promotion. Therefore, it requires a highly capable team.

Today, the e-cigarette industry has gathered various marketing experts, fast-moving consumer goods experts, channel experts, and investment and financing experts. So, which model is more suitable for e-cigarette sales?

Let's first look at the purchasing channels for JUUL, the world's number one e-cigarette brand. 41% of users choose to buy from e-cigarette stores, 29% from convenience stores, and pharmacies and newsstands account for 9%, indicating a very high proportion of offline channels. This provides strong reference for the sales channel operations of domestic e-cigarette brands.

However, given that the current policies regarding e-cigarettes in China are not yet fully clarified, the main sales channels for e-cigarettes still concentrate online.

Domestic e-cigarette brands primarily choose e-commerce channels and WeChat channels for direct sales. E-commerce channels are mainly dominated by Taobao, Tmall, and JD.com, while WeChat channels focus on mini-program malls and self-media distribution advertisements.

Offline is the Key to Determining the Status of E-Cigarette Brands

According to Blue Hole New Consumption, a well-known e-cigarette brand in the industry had a self-operated GMV share of 25% in 2018, which is expected to decrease to 15% in 2019, while the channel proportion will rise to 85%. In terms of gross margin, self-operated is 70%, while channels are 35%. Self-operated can be understood as direct e-commerce sales by the brand owner, while channels refer to the offline reliance on third-party agency distribution models. This indicates that offline sales revenue will become a core indicator determining the status of e-cigarette brands.

The so-called offline channels are divided into city agents and distributors, store layout, and cooperation with automatic vending machines.

Agency distribution will establish provincial and municipal agents, with local markets open for local agents to expand. The O2O era's ground promotion model may regain new life with the increase of e-cigarette companies.

Store layouts include supermarkets, convenience stores, retail stores, brand specialty stores, vape bars, KTVs, bars, internet cafes, roadside stalls, amusement halls, etc., all of which are important scenarios suitable for e-cigarette sales.

Store owners with offline stores have stated that they opened two stores without special promotion, relying solely on word of mouth and a referral model, and are currently considering taking on more e-cigarette brands as agents.

Currently, the offline sales channels for e-cigarettes are just beginning, and some brands have not even started to lay out offline channels. It is believed that once policies become clear, offline will become a battleground for major e-cigarette brands.

Therefore, Blue Hole New Consumption predicts that once companies open up offline distribution channels, a price war may soon break out, and consumers are likely to find very cheap e-cigarettes.